Long-term care expenditures and investment decisions under uncertainty

Long-term care (LTC) expenditures for the elderly are high in developed countries and are expected to increase further as the population ages. Additionally, LTC costs vary significantly across individuals and are unknown early in life. In this paper, we introduce uncertainty regarding the timing of future LTC costs into a life-cycle model with endogenous aging. We then analyze how this uncertainty impacts the optimal behavior of agents. Our findings demonstrate that uncertainty reduces health investment during youth and diminishes the effectiveness of health investment subsidies. These results suggest that uncertainty should be carefully considered in models that examine the positive or normative aspects of health investment.